October 16, 2016
Weekly Market Outlook
By Keith Schneider
“Russian Parliament in Session”
Adding to the circus like election atmosphere, longtime Putin ally and state award winner Vladmir Zhirinovsky, a wacky ultra right wing Russian lawmaker, made a stunning endorsement. He advised US voters to vote for Trump in order to avoid nuclear war. At the moment, according to latest polls, Vladmirs support of Trump has not had the desired effect on US voters.
Our iffy outlook for US Equities last week panned out to the downside as US equities sold off with the S&P 500 down -.9% and with the IWM down -1.9%. The US Presidential elections continue in its degenerative state adding to the general malaise.
Something that we have not seen in a long time is a complete lack of buying conviction from institutions. This as highlighted by looking at accumulation/distribution days. There has been zero accumulation days the last two weeks. In fact, we have only seen distribution days across the four key indexes (https://marketgauge.com/resources/littlebigview/?tab=1).
The strength in the dollar, rising US interest rates coupled with the continued flight from the British Pound kept the selling pressure on equities. However Latin America, with exposure to commodities, continues to hold up well relative to the other equity markets.
Risk On indicators such as the spread on high yield debt versus US bonds continued to stay in bullish territory while the overall market internals weakened. Other risk on indicators on held onto bullish ground, so you have a scenario where price action and internals are weak but key inter-market relationships remain positive.
Meanwhile, the great bond bubble has popped and for the first time since early January. Bonds closed under its 200 day moving average. From a broader longer term perspective, momentum often precedes price and some of our Real Motion momentum indicators have broken down.
The big tailwind of lower interest rates has run its course. It remains to be seen just how fast it will unwind.
Momentum and price charts are weakening in Equities as well. The breakdown in longer term momentum that occurred January in stocks seems to be reasserting its grip after a long hiatus. There is some support near current levels for on the monthly and weekly charts.
For more specifics and details let’s go to this weeks video.
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